Paterson, then came up with the idea of forming the Scottish Trading Company, backed by the Scottish government. He told everybody that he knew of a secret place in the Americas where there was plenty of gold, and thee were no Spaniards to interfere with trade. He did not name this place, but mentioned that from there, they could control trade for all the world, but he suggested that the West Indies should be part of the scope of this company. Inn 1695, by act of the Scottish Parliament, the Company of Scotland trading to Africa and the Indies was formed. King William III, even signed on to the company.

After the company was formed, Paterson revealed his secret land as the Isthmus of Darien, and proposed the establishment of settlements on both the Atlantic and Pacific coast. With these to settlements, he prophesied that they could control world commerce. Investors flocked to his company, and in a little over a week, he had raised more than half of the capital he needed. The English parliament, became very upset, and declared that the new Scottish company, was going to harm English trade, and declared that the directors of the Scottish company were guilty of high crimes. King William, became upset and declared that he had been tricked into joining the venture, and proceeded to fire, some top Scottish officials. The money pledged to the Scottish Company, by English merchants was withdrawn, as so, those from Hamburg, under threat from England. 

In Scotland, the reaction was the opposite. Money poured into the company from all corners of the land. They were upset the reason England was now opposed, was that it might cut into the commerce of the East India Company. Nationalism took hold, and Scots from all over, not only invested their savings, but also  volunteered to go to the Isthmus of Darien. The Scottish Trading Company soon had £400,000 in their coffers, and started to outfit the expedition. They had much more volunteers than were  needed for the first expedition. The aristocrats sent their youngest sons (the custom of the day, was that the oldest son inherited the family fortune and the younger children, got nothing. As in Spain, the all elected to come to America to search for their fortune), landowners sent their workers to bring glory and gold to Scotland. There were many former army officers looking for jobs, and they tried to join the expedition, in great force. Many former soldier and sailor, who were rejected from the first group of settlers being sent, tried to stow away on the ships heading to Darien. Paterson had no role of authority on the expedition, and was part of the departing settlers, along with his wife with her maid, and some other women.

On July 26, 1698, a fleet of 5 large ships, 1,200 settlers, and provisions, sailed form Leith, Scotland, to Darien, in Nueva Granada. On the trip, Paterson was appointed to the Council, and only 44 of the colonist died. On November 3, they landed in Darien, and took possession of the land for Scotland. They started building the settlement of New Edinburgh. The constructed a fort to command the harbor with 16 cannons, which they called Fort Saint Andrew. They renamed the area, Caledonia and the bay was called Caledonia Bay. They also established friendly relations with the Indians of the area and entered into perpetual confederations with them.

The Spanish were not to pleased with this intrusion into their domain, and their ambassador, in London, protested. In the mean time, the governors of Panama and Cartagena, started to raise an army and navy to expel them. The English king, William III, in an attempt to calm the Spanish, issued orders to its American Colonies, not to help the Scottish colony with food or provisions or to have communications with them, in any way.

The new colony had forces working against its success from within, along with the ire of the English king and the gathering armada, of the Spanish. About 300 of the settlers were of the "gentleman class", and had never done any work, and were not about to start doing it. They were absolutely no help to the settlers, as far as building homes or planting crops. The rest were farmers and trades men from the northern climates, that were willing to work and did so with enthusiasm, could not get acclimatize themselves to the heat and humidity of the tropics. Their Councilors were incompetent and were continuously quarrelling among themselves. They also were not receiving any communications or provisions from the directors of the company in Scotland. Their Indian allies, were upset with them, because they originally thought that like the buccaneers, who attacked their common foe, the Spanish, these foreigners, did nothing. The Indians were also bring them reports of the forces that the Spanish were mustering to kick them out of Darien. Besides the low provisions, they were now experiencing the diseases of the Tropics (Malaria, Yellow Fever, Dysentery), and the large number of vermin's (poisonous snakes, spiders, scorpions, and the multitude of insects) and their members were dying off. By early summer, more then a quarter of their force had succumbed to land. Even Paterson's wife died, contributing to his discouragement. Most of the colonist also were discouraged, and on June 20, 1699, they abandoned the colony, setting sail back to Scotland, via New York. Paterson was the last man to board the ship, and he had to be carried on, since he too had contracted a fever. He protested the desertion of the new colony, and tried to get the people to remain. He assured them that relief was on its way; but, nobody would listen. On the return trip, another 400 settlers died. The once proud expedition that left Scotland, with 1,200 settlers on 5 ships finally arrived in Scotland. The tattered remains of the colonist, arrived in back home on one ship, with less than one third of the settlers. 

The second group of settlers, had good luck on the trip to Darien, and only lost one person on the voyage. When they arrived, they expected to find a thriving community, instead, they found an abandoned town. Being very exuberant and ambitious, they decided to stay and hold the colony, with the knowledge that relief was on the way. Soon after their arrival, one of their ships, caught fire, and burned. This was the ship that held most of their supplies, and most of it was still on board, and it was all lost. After the fire, the group became discouraged and decided to abandon the colony, and they sailed to Jamaica. In Jamaica, many of them contracted disease and died. Twelve settlers remained in New Edinburgh, to wait for the arrival of the reinforcements that were coming from Scotland.

They left Scotland on September 24, 1699, with 1,300 settlers on 4 ships, and sufficient supplies to last them a year. Ample time for them to plant and harvest their crops, and not depend on supplies reaching them from Scotland. Although they expected more supplies to arrive from Scotland, they were not dependent on it. The ships arrived in Caledonia Bay on November 30, 1699, and they already lost 160 of their members on the trip. 

When the Third Expedition arrived in Caledonia, they found one member of the First Expedition waiting for them. He was Captain Thomas Drummond, who had stayed in New York, and when he heard that they were on the way to New Edinburgh, he sailed there, hoping to help in the re-establishment of the colony. They also found the twelve members of the Second Expedition that remained behind. They were living with friendly Indians in the area.

The new arrivals, proceeded to clear the jungle that had overgrown the settlement, in the five months, since the it had been abandoned. They started to rebuild the huts and establish relations with the neighboring Indians. Unfortunately, fate was working against them. The Councilors, started fighting amongst them selves, and dissatisfaction and discontent grew. The colonist started falling ill, to the Tropical diseases, and fear of the force the Spaniards were amassing caused them concern. Captain Drummond, wanted to take a force of 150 men, with some Indian allies, and preemptively, strike the Spanish in Porto Bello, where their forces were amassing. The most powerful member of the Council, James Byres, who was a religious fanatic, would have nothing of this. He believed that it was sinful for Christians to make war. He proceeded to have Drummond and his allies arrested, and put in chains, under the charge that they were planning to steal one of their ships and sail away.

In February, 1700, reinforcements and supplies arrived with the new governor, appointed by the Board of Directors, Captain Alexander Campbell. The first thing he did, was release Captain Drummond, and make arrangements for battle with the Spanish. He took a force of 200 Scots and 40 Indians and marched off to attack the Spanish. By then, his Indian scouts had reported that the Spaniards were coming to attack New Edinburgh. The two forces met a place called Topocanté. The Spanish militia consisted of 300 to 400 men, most of them either Creoles, Mulattos or Negroes, under the command of Miguel de Cordoñez and no regular soldiers. The Spanish had barricaded themselves on top of a hill, but the Scots attacked and routed the Spaniards, who fled into the jungles.

After this initial success, the Scot's were in good spirits. But, on February 25, eleven Spanish ships appeared in the horizon, driving the Scot's boats close to land. At the same time, regular Spanish troops arrived from Panama and Santa Maria, and surrounded the settlement. To add to the plight of the settlers, many of them had died of diseases and munitions were running low, since they did not come prepared for war. The Spanish general, Don Juan Pimienta, governor of Cartagena and Panama, sent word to the Scots, that he was there to forcibly remove them from their, if they did not surrender, on March 30th. They were granted 14 days to abandoned the area, and sail back to Scotland. They were allowed to keep their weapons and leave with dignity. Ironically, at this time, a new Scottish ship named the "Speedy Return" arrived in port. On April 11, 1700 the Scots abandoned New Caledonia, and New Edinburgh for the last time. The settlers were so weakened, by disease that the Spaniards needed to help them board their ships and hoist the sails on the "Rising Sun", the largest of ships, a 65 gunner. Campbell and Drummond eventually got back to Scotland, in their own ships. The rest of the colonist ships were wrecked in the Caribbean, with the loss of many lives. Of the original 1,300 settlers, only 360 survived, and were scattered amongst the various English settlements in the West Indies.

The last attempt to establish a Scottish colony in the Americas, was the arrival of the sloop, Margaret of Dundee, which left Scotland on March 9, 1700 and arrived in Caledonia Bay on June 16th. Captain Patrick MacDowall, found that the Spanish were in possession of the town, and quickly left the area, not before firing some parting shots at them. He sailed off to Jamaica, ending all Scottish attempts to settle in Darien.

The dream, was always keep alive, by Paterson, the originator of the Darien Scheme. He never stopped thinking of someway to revitalize the Scottish colony in Darien, but it was never to be.